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The Market Loves Drugs & Tech; Hates Power and the Powerful


The performance of the Nifty 50 index has been patchy from last Samvat because of the outbreak of Covid-19. The lockdown imposed from the last week of March 2020 led the Nifty 50 index slip over 35% from its all-time high. However, since then the index has touched new highs led by select heavyweights.

Pharma and IT stocks were among the top gainers from the last Samvat, while PSU energy stocks were among the top losers.

We take a look at some of the biggest NIFTY winners and losers over the last year and what might lie ahead.

The Market Loves Drugs & Tech; Hates Power and the Powerful

NIFTY winners

Divi’s Laboratories:

This stock was recently included in the Nifty 50 index. The share price of the company has seen 80%+ growth on the back of strong API (Active Pharmaceutical Ingredient) – one of the key products – demand.

The demand trigger was due to a shortage in APIs globally amidst the Covid scenario. Divi’s being among the top-3 global API manufacturers was the most preferred choice as customers looked to diversify their sourcing vendors and reduce dependency on a large single-source – China. In Q1FY21, the company reported its highest-ever quarterly, revenue/EBTIDA/net profit led by volumes that did not include any business opportunity related to Covid-19 treatment. Another reason which aided the rally was the settlement of the long-pending insider trading case against the CFO of the company.

Going ahead, key things to watch out for would include additional revenues from largest-ever & timely capacity expansion, and potential supply opportunity flowing from Chinese replacement and Covid-19 treatment.

Dr Reddy’s:

Along with strong financial performance, multiple partnerships entered for Covid-19 products, strong product launches where competition is low, improved outlook for the API business, on track integration of Wockhardt’s acquired brands, and settlement of Revlimid which gives strong cash flow visibility over 2022-2026 aided the rally.

In the U.S., the product flow has been stronger. Low-competition launches of gCiprodex, gKuvan, gVoltaren gel OTC and likely rise in market share in gSuboxone have been benefitting. The company is launching 20+ products each year. In India, the growth has been supported by the Wockhardt acquisition and launch of Remdesivir.

API business accounts for 15% of Dr Reddy’s revenue, and as mentioned above, this segment will benefit as customers looked to diversify their sourcing vendors and reduce dependency on China.

The Market Loves Drugs & Tech; Hates Power and the Powerful


Restructuring of its businesses and changes in capital allocation priorities, Perrigo’s recall and halt of Albuterol sales, focus on scaling its Indian business, maintaining leadership across private and OTC markets in South Africa, and continuing to build its respiratory franchise in US generics were the factors that aided the growth in share prices.

The company is also focusing on cost optimisation and cash generation. It has moderated its R&D costs in view of lessened respiratory clinical trials. Along with this, the lower taxes should also boost earnings. The company has reported sequential growth in U.S. sales and margin expansion for two consecutive quarters. Recently the company also turned into a net cash company.

IT: The top four IT companies in India by market capitalisation – TCS, Infosys, HCL Tech, and Wipro – have been among the top gainers. Limited impact of Covid-19 on topline, resilient margins, strong deal pipeline, and robust demand outlook. The drop in revenue for IT companies was limited in Q1 and from Q2 a broad-based recovery across verticals, but particularly strong in BFSI, retail and lifesciences were witnessed.

EBIT margins improved due to higher utilization, improved offshore mix, lower sub-contracting, and travel & marketing costs. The margins were the highest in 5 years. However, these high margins are unlikely to sustain at current levels with a pickup in hiring, salary hikes, and promotion.

The Market Loves Drugs & Tech; Hates Power and the Powerful

The addressable market for IT companies expanded with the accelerated pace of cloud adoption, pickup in demand for cybersecurity, and automation. Moreover, the urgency to drive digital initiatives is driving outsourced IT spends, thus expanding the addressable market. Management commentary across IT firms and their top clients suggests that demand outlook will remain strong with a focus on building operational resilience and improving customer and employee experience.

Reliance Industries:

Strong growth and stake sale in its consumer businesses – telecom and retail – aided the rally in the share prices of India’s most valuable company. This coupled with rights issues helped the company turn net cash.

In the telecom business, the company inducted 14 investors who pumped in close to ₹ 1.52 lakh crore, while in the retail business it got 9 investors who invested close to ₹ 47,200 crore. The company also initiated India’s largest-ever rights issue of ₹ 53,000 crore.

The Market Loves Drugs & Tech; Hates Power and the Powerful

On the flip side, the oil to chemical business has remained under pressure due to a weak global environment. Along with this, growth in its telecom business is now showing signs of a slowdown. Thus, tracking the growth of its telecom business and improvement in oil and chemical margins would be the key thing to watch out for going ahead.

JSW Steel:

Consolidation in the steel industry, falling raw material prices, faster demand recovery, and price hikes aided the rally in the share prices of India’s largest steel maker. The Covid-19 induced lockdown which led to demand headwinds globally forced consolidation among smaller players due to liquidity scarcity.

The Market Loves Drugs & Tech; Hates Power and the Powerful

Meanwhile, on the cost front, a fall in coking coal prices and local iron ore prices improved steel spreads. The company also witnessed cost savings, especially on logistics with the development of its iron ore mines.

There was a demand recovery post lockdown relaxation from road and metro projects, transmission, irrigation, and power sectors which prompted steel makers to hike prices. The improving demand and higher steel prices will further aid margin expansion.

However, concerns around losses in the overseas businesses, a recent uptick in iron ore prices due to production disruptions, and higher debt and leverage continue to loom over the company.

Asian Paints:

A sharp reduction in raw material prices, faster recovery in demand as lockdown rules were relaxed and market share gains in the low-economy segment aided the share prices.

For Asian Paints, 60% of its input costs are crude derivatives. A drop in crude price will lead to a reduction in input costs of Asian Paints with a lag of 3-6 months. Unlike many categories, paints demand is only deferred and not impaired, and thus as the situation eased, the company experienced pent-up demand.

The Market Loves Drugs & Tech; Hates Power and the Powerful

The company was seeing faster demand recovery in tier-2 and 3 cities. And to address the consumer concern in large cities of allowing painters in the house, the company launched a ‘safe painting’ campaign, which started seeing encouraging responses.

Along with this, Asian Paints is aggressively looking to gain share in the low-economy segment with the launch of new and more affordable products. The company has been gaining share on this front, but the same has been margin dilutive. However, concerns remain around demand post-festive season and if the second round of lockdown is implemented.

NIFTY Losers


Sharp fall in crude prices and cut in gas prices for the third consecutive time led the share prices of India’s largest oil and gas explorer to halve in value. Brent crude — the Asian Benchmark — fell sharply due to global economic uncertainty because of coronavirus outbreak and disintegration of the OPEC+ alliance which triggered an all-out price war between Saudi Arabia and Russia.

The Market Loves Drugs & Tech; Hates Power and the Powerful

On the other hand, the Indian Government, cut gas prices by 25% to $1.79/mmBtu – half of the production cost which stands at $3.59/mmBtu. Along with this due to lockdown, the production and sales number also took a hit for the oil major.

Now a chance of an early potential recovery in oil prices looks bleak due to high inventory and second wave of lockdown. However, gas prices can well be deregulated in India as a committee has been set up to suggest changes to the prevailing price formula.

Oil Marketers:

Inventory losses, lower sales, and weak global refining margins have led to a fall in share prices of India’s top two oil marketers. A sharp fall in crude prices led to inventory losses, while lower product sales were owing to lockdown. Global refining margins continue to remain weak due to the high inventory of refined products globally.

For BPCL the fall in share prices was also due to an extension of the timeline related to divestment.

In the last quarter, due to recovery in crude prices, both the companies recouped part of the inventory losses. Also, though refining continued to remain weak, the oil marketers are able to cope with the losses through the marketing segment. Relaxation of lockdown and stable gross marketing margins have led to a better marketing segment performance when compared to refining.

The Market Loves Drugs & Tech; Hates Power and the Powerful

Coal India:

Weak prices, lack of defined price hike policy, upcoming wage revision, rising receivables, increased capex, frequent stake sale by the government, and big contingent liabilities concerns are looming over the share prices of the world’s largest coal-producing company. Due to rising production in Indonesia and sluggish demand e-auction prices have been under pressure.

The working capital situation of the company has also been a concern due to increased capital expenditure and rising receivables due to the weak financial situation of the power sector. Coal India’s worker wages are revised every five years with the next revision due from July 2021, which will push up cost in FY22. In the last two revisions, staff costs rose 44% over FY11-13 and FY16-18.

The large contingent liabilities of around ₹ 91,500 crore, which include tax and environment-related items, is another overhang. However, recovering coal demand, undemanding valuations, and attractive dividend yield are the only positives for Coal India.

GAIL (India):

Series of overhang coupled with lower gas offtake due to Covid-19 impacted the share prices of India’s largest gas distributor.

A combination of factors related to a weak commodity – oil and gas – prices, lower than expected pipeline tariff hike, weaker petrochemical margins, and concerns around splitting of its two businesses and payment of AGR dues have kept the share prices weak for the gas distributor.

So far of these, the overhang around the payment of AGR dues has been removed, but other factors remain.  The company reported losses in two out of the four business segments due to weak commodity and petrochemical product prices.

The Market Loves Drugs & Tech; Hates Power and the Powerful


Expensive acquisitions, rising receivables, rebates to be given to customers and stake sale by the government have weighed on the share prices of the company. Earlier this year, NTPC paid ₹ 11,500 crore to acquire the government’s stakes in THDC India Ltd. (THDCIL) and North Eastern Electric Power Corp. Ltd. The acquisitions were expensive as it was at a valuation higher than what NTPC was trading.

Along with this rising receivable due to the weak financial situation of power distribution company has been an added overhang. To ease the financial logjam at power distribution companies, the Indian Government announced ₹ 90,000 crore liquidity support, helping them to clear pending dues.

However, the stipulation that NTPC will offer rebates and forgo fixed costs for power not consumed during the lockdown impacted adversely. After fuel, fixed cost is the next big expense for NTPC, constituting as much as a third of tariff. Waiver of this cost can lead to a large cost under-recovery.


Near-term uncertainty about demand and supply, adverse currency movement, lower cash flows, and elevated debt, and the resignation of overseas auditors has kept the share prices of UPL under check. Since the outbreak of coronavirus, the share prices have traded lower, as it earlier weakened demand and impacted supply chains.

As most of the company’s revenue and debt are foreign currency-denominated, the adverse movement of the Indian Rupee impacted the financial. The Arysta acquisition swelled UPL’s gross debt by 5 times to close to ₹ 32,000 crore in FY20. This coupled with lower cash flow from operations has made investors doubtful of the company’s ability to de-leverage its balance sheet.

The Market Loves Drugs & Tech; Hates Power and the Powerful

Recently, KPMG, Mauritius – auditor of UPL’s subsidiary UPL Corp – which contributes 80% to EBITDA, tendered an untimely resignation. Though according to the management, the resignation was at their behest as the outgoing auditor was facing bandwidth issues leading to delay in the audit process, the street remains cautious.

However, now with operations back to normal, the company’s target to repay a debt of $700 million in H2FY21, would be a key trigger to watch out for.

IndusInd Bank:

Weak asset quality due to high exposure to stressed sectors, higher provisioning related to Covid-19, deposit issues, a sharp decline in core fee income, change in leadership, pledged shares by the promoter, and a higher share of loan book under moratorium led to a sharp drop in the share prices of the bank.

Higher exposure to stressed sector – telecom, real estate, gems & jewellery – coupled with Covid-19 kept provisioning at elevated levels. Along with this, the bank’s core fee income declined sharply mainly due to lower investment banking income, processing fees, and distribution income. Also, in FY20, the bank witnessed a fall in its CASA ratio (deposits) to 40% from 43% last year. This was due to withdrawals by state government departments.

The Market Loves Drugs & Tech; Hates Power and the Powerful

In Q4FY20, nearly half of IndusInd’s loan book had opted for the moratorium which dented investor confidence. However, things have changed since then. The bank’s loan book under moratorium declined to 16%, deposits and collection efficiency improved, and completed fund infusion to strengthen the balance sheet – helped build investor confidence.

Larsen & Toubro:

Fall in public capital expenditure, execution challenges amid Covid-19, exposure to states with high fiscal deficits, impact on international and hydrocarbon business following the correction in crude prices, and elongated working capital cycle were the concerns that led to the fall in share prices of construction major.

Fall in government and private capex has led to a fall in order inflow, while due to lockdown the company was facing labour availability issues. Due to exposure to states with high fiscal deficit and weak macros, the company’s net working capital remained higher than normalised levels.

The Market Loves Drugs & Tech; Hates Power and the Powerful

Normalisation of the Indian economy and revival of crude prices for international orders especially for hydrocarbon division is needed so that order inflow prospects improve which is the key determinant for L&T.


The company operates in five business segments – cigarettes, FMCG, hotels, paperboards, and agri-products. Of these, the two segments – cigarettes and hotel – which contribute 87% to its EBIT, faced severe headwinds due to the lockdown.

Even as the economy has been opening, these two businesses continue to face headwinds albeit at a lower level, due to localised lockdowns. Unlike grocery outlets, which typically operate despite lockdowns, point of sale for cigarettes is shut down which impacts product availability. Similarly, even hotel operations resumed albeit with restrictions. The increasing significance of ESG led investing and an overhang of potential tax tweaks in the GST meeting has also been an overhang on the share prices.

The Market Loves Drugs & Tech; Hates Power and the Powerful

On the flip side, the FMCG, paperboard, and agri division are performing better. This coupled with increased dividend payouts, maintaining cigarette market share, tailwinds for FMCG foods business, strong free cash flow generation, and inexpensive valuation could lead to an upside.

As we head into 2020 Diwali weekend, the NIFTY is making new highs on the back of banking stocks. News of a potential vaccine in the works has reanimated beaten down sectors even as Europe is bracing for a 2nd wave. Closer to home, September data shows encouraging signs of the economy getting back to normal.

Have we gotten too optimistic too quickly or is this the beginning of a sustained recovery…


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